Incorporating in Washington Versus Delaware: What’s Best for Your Startup?
One of the first steps when forming a company is to decide which state is best to “register” your company. Today’s post highlights some of the reasons why you may want to considering incorporating in Washington versus Delaware.
I heard Delaware was the best state to incorporate my company, is that true?
It is true that Delaware has a specialized court that handles corporate disputes (the “Court of Chancery”) and is recognized as the nation’s preeminent forum for determining internal corporate and other business disputes. Delaware also has friendly corporate statutes and a well-developed, widely understood, and closely followed body of corporate law. But Washington state also offers advantages unmatched by Delaware (and many other states).
Two of these advantages are the simple incorporation process and affordable annual fees. Delaware’s annual fees can be substantial and require complicated calculations based on the corporation’s outstanding shares and value. On the other hand, Washington has a simple flat rate annual fee for registered entities. Delaware also requires documents to be faxed or mailed in, while Washington has streamlined its filing processes to be available almost entirely online. You’ll generally save time and money incorporating in Washington versus Delaware.
There’s less administrative hassle if you’re a Washington-based company. If you are based in Washington and incorporate in Delaware, you’ll be required (at least) to maintain a registered agent in Delaware (and pay an annual fee to do so), register your company in Washington (if you’re “doing business” in Washington), and pay an annual filing fee and file an annual report in Delaware and Washington. So incorporating in Washington can save you time and money from an administrative standpoint, particularly if your company is based in Washington.
Also, Washington’s corporate law offers protection from liability and broad indemnification for directors and officers. While not to the same extent as Delaware, Washington’s corporate law is also relatively well developed and well maintained.
But don’t investors want my startup to be incorporated in Delaware?
Some investors may care about this, but most won’t care where your company is formed as long it isn’t going to cause any unnecessary problems for the company. I haven’t come across an investor yet that required the Washington company to re-organize as a Delaware corporation. It should be no surprise, but investors care more about your team and product than they do where your company is incorporated. In fact, some investors, particularly local angel investor groups, prefer to invest locally and would prefer to invest in a company that is based out of and incorporated in the state where the investor is located. Another Seattle securities attorney, John Myer, wrote a great article on this subject on his blog.
Prominent Seattle startup lawyer, Joe Wallin, summed up the issue well in his blog post; he said that it generally comes down to whether you want to save some time and money and likely be asked why you incorporated your startup in Washington, or spend some extra time and money to incorporate in Delaware and never be asked why you didn’t incorporate in Delaware.
If you’re interested in learning more about forming a company or incorporating in Washington versus Delaware, please contact us today to talk about your venture and how we can help.